Shares of Starbucks (SBUX) - Get Report have been making a series of lower highs for the last year above a horizontal support zone in the $52.50 to $51.50 area. The most recent retest of support this month briefly penetrated the zone but quickly reversed, forming a strong white candle and initiating a 12-day rally that saw a 12% increase in the stock price.
It looks like the stock is on course to close a large gap that formed in April, but there are multiple layers of resistance directly overhead and a brief and healthy pullback may be required before it can head higher.
The 52-week run of lower highs above static support formed a large triangle pattern on the daily chart, and the strong bounce off pattern support this month has propelled price back up to the downtrend line drawn off the 2015 and 2016 highs.
Directly above this long-term resistance line is the lower border of the April gap, a level that also marked the end of the June bounce this year that culminated with the July high. This reinforced zone of resistance between $57.50 and $58.50 could be the terminus of the November rally.
Moving average convergence/divergence is above its center line and tracking higher, reflecting the positive price momentum, but the relative strength index is entering an overbought condition. Money flow is in positive territory, but it has oscillated along with the tests and retests of support and resistance.
The most constructive scenario going forward would be for the stock to enter the resistance zone, which would be a good area to take profits, and then pull back to the 200-day moving average, currently at the $58.82 level, where it could regroup before another attempt at penetrating the resistance zone and closing the gap.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.